In the mills of global trade negotiations there are two significant Preferential Trade Agreements (PTA’s) that are expected to reshape the global trading system: the Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP). The agreements will have a direct impact on party states[1], affecting tariff levels, non-tariff barriers and establishing harmonised rules on trade, but will also resonate throughout the global trading system as party states contribute a significant amount to global trade.

To this effect Peter Draper and Memory Dube conducted a high-level strategic analysis of the effects these agreements will have on Atlantic African and Latin American states. This is the latest in a series of analyses on mega regional trade agreements which previously looked at the impact they could have on the EU, ASEAN and ACP group of countries.

The first thing non-party Atlantic states need to consider is that the agreements will have an impact on market access as trade barriers are liberalized between party states. Non-party states might also see preference erosion, particularly in products that compete directly with liberalized trade amongst the parties. Regardless of how market access is affected, non-party states are likely to experience trade and investment diversion as party states continue to integrate. The extent of trade and investment diversion also hinges on negotiations pertaining to Rules of Origin (RoO) and trade in services, which in turn will have an impact on non-party states’ flow of trade in goods, services and more importantly foreign investment.

The TPP and TTIP negotiations also hold a great opportunity for progress in terms of trade rules and harmonising regulatory standards. Should coherent, uniform standards and requirements emerge, costs pertaining to compliance for third parties could decrease, but there is a risk that these standards will be high enough to constitute a barrier for non-party members, especially LDC’s. Negotiations on rules range from the trade in goods, through intellectual property rights, investment protection, and competition policy. The opportunity for non-party states lies in leveraging current agreements with party states to align these rules for greater participation by non-party states, simplifying processes and reducing costs by having universal, predictable rules.

Atlantic African and Latin American states will need to re-evaluate their positions on the disciplines agreed upon in the mega-regionals to continue attracting investments from party states and enjoy sustained market access; this being said the greatest hurdle for non-party states will be political willingness to reform policies to align with the mega regionals. Consequently, the article investigates existing trade communities in Atlantic Latin American and African countries in light of their historical frame of economic integration. They highlight the divisions among Latin American economies’ attitudes towards global economic integration, especially with the West, and Africa’s major economies, which seem to be leaning increasingly towards inwards-looking trade and industry policies.

Draper and Dube envisage three scenarios based on the outcome of the TPP and TTIP negotiations. The first scenario, full success, envisages a utopian trade agreement with complete liberalization of trade barriers. In this, highly unlikely, scenario non-party states will suffer trade diversion and competitive liberalization will compel them to liberalize their own trade and investment regimes. The second scenario, partial success, takes into consideration the likelihood of trade-offs and concessions expected in trade negotiations, and accepts comprehensive liberalization of tariffs and regulatory compromises as a likely outcome. In this scenario non-party states will have more room and time to adjust their trade strategies and the pressure to negotiate reciprocal trade agreements with developed states will increase marginally. The third scenario, failure, sees a modest agreement on tariff schedules and largely hortatory declarations on achieving future progress. In this scenario the role of global trade leadership will be heavily contested by the US, EU, and China. For non-party states this means pressure to establish reciprocal trade agreements with competing powers will increase. The outcome of these reciprocal agreements will depend on how non-party states play the competing powers against each other, but regardless of the extent of failure in this scenario the WTO will continue to drudge along without further resolve.

The constant in all three scenarios is that non-member states will continue to be pressured to comply with rigorous behind-the-border regulatory norms and to liberalize trade policy. Atlantic Latin American and African states that position themselves to be included in Global Value Chains, via regulatory upgrades and trade and investment policy liberalization, will be better placed to manage the transition.

The full article, as published by the German Marshall Fund of the United States (GMFUS), is available for download here. Another article pertaining specifically to the strategic implications for South Africa is available here.

In this podcast, Guillaume Xavier-Bender of GMFUS interviews Peter Draper about the impact that the Transatlantic Trade and Investment Partnership (TTIP) will have on countries in the South Atlantic.